Investors often think about stock price appreciation when making their moves in the market. However, there’s an entirely different side of the market that retirees often rely on.
There’s a class of investors that depends on income from their investments who focus primarily on dividend stocks. These stocks share their profits with investors, paying out a portion of their free cash flow as dividend income.
While income investors are interested in share price appreciation, a reliable dividend is often more important, especially for those who plan on living off their investments. The key is finding a balance between high yields and reliability.
Best High-Yield Stocks With Safe Dividends to Buy
High dividends aren’t always sustainable. It’s important to look at companies that are known for both high dividend yields and sustainable dividend payments.
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Some of the best dividend stocks to consider are known as dividend aristocrats. These companies have a track record of not only paying dividends but increasing them for at least 25 consecutive years.
Although the best dividend payers aren’t always on the dividend aristocrat list, it’s important to look into dividend increases because they suggest a company is financially strong and will continue to produce reliable income for investors.
Some of the best high-yield stocks with safe dividends on the market include:
1. Enterprise Products Partners (EPD)
Best for income investors looking for a great value.
- Dividend Yield: 7.13%
- YTD Performance: Up over 15%
- P/E Ratio: 12.42
- Dividend Payout Ratio: 82.22%
- Quarterly Dividend Payment: $0.46 per share
Enterprise Products Partners is one of the largest midstream fossil fuels companies in the United States. As a midstream energy company, EPD has a network of oil and natural gas pipelines throughout the United States. The company also processes, stores, and markets natural gas and crude oil.
The company’s share price has climbed dramatically since the start of the year, yielding more than 15% returns for investors as energy prices continue to soar. However, the share price isn’t the only reason to be excited.
EPD isn’t quite a dividend aristocrat yet, but the company has increased its dividend every year for the past 22 years. It’s just three years away from joining the ranks of elite dividend payers.
The valuation of the company is equally impressive. With a price-to-earnings (P/E) ratio of around 12, it trades at around half the valuation of the average company in the oil and gas industry, where the average P/E stands just above 25.
The undervaluation can be largely blamed on the COVID-19 pandemic. EPD hasn’t quite recovered from the event yet. Prior to the pandemic, the stock traded at around $28.50 per share. By early April 2022, the stock had climbed back to around $26.50, but there’s still room to run.
Perhaps that’s why analysts are so excited about the stock.
According to TipRanks, eight of 11 analysts covering Enterprise Products Partners rate the stock a Buy, while three rate it a Hold. There are no Sell ratings to speak of. The average price target is currently $29.10, representing the potential for more than 11% gains ahead.
2. IBM (IBM)
Best for tech investors seeking strong dividends.
- Dividend Yield: 5.01%
- YTD Performance: Down 3.77%
- P/E Ratio: 20.61
- Dividend Payout Ratio: 64.32%
- Quarterly Dividend Payment: $1.64 per share
IBM was founded in 1911, making it one of the oldest tech companies in the United States and giving investors a long history to look at. Throughout its history, the company has had a stellar performance and remains a leader in information technology today.
The company’s tech can be found in homes, schools, stores, and health care facilities across the U.S. and around the world. In fact, during the COVID-19 pandemic, IBM shared its supercomputing power to help track strains of the virus and develop vaccines, treatments, and processes to limit the spread.
The stock is also a hot pick among dividend investors, especially those who want the latest and greatest tech in their portfolios.
Like many other tech stocks, IBM hasn’t had the best of starts to 2022. However, many analysts suggest the recent declines are nothing more than a blip and that the stock is likely to level back out soon.
The case for recovery becomes stronger when you look at the stock’s valuation. IBM currently trades with a P/E ratio of around 20. According to Simply Wall Street, the average P/E ratio in the information technology industry is 26.2.
IBM recently became a dividend aristocrat as well. Just last year, the company raised its dividend for the 26th consecutive year.
When it comes to analysts, four out of 12 rate the stock a Buy, six rate it a Hold, and two rate it a Sell. The average price target on the stock is $144.08, suggesting the potential for about 10% upward movement over the next year, according to TipRanks.
Although analysts are mixed, the stock represents a great opportunity to get in on a pivotal company in the U.S. tech industry, tap into reliable dividends, and share in what could be a strong recovery ahead.
3. Philip Morris International (PM)
Best for consistent dividend increases.
- Dividend Yield: 5.33%
- YTD Performance: Down about 2%
- P/E Ratio: 16.12
- Dividend Payout Ratio: 81.55%
- Quarterly Dividend Payment: $1.25 per share
Founded in 1847, Philip Morris International is one of the longest-lived tobacco companies in the U.S. The company produces cigarettes and other tobacco products for consumers in more than 180 countries, and it’s not shy about dividend payments.
This dividend aristocrat has increased dividend payments for the past 52 consecutive years and shows no sign of breaking the trend anytime soon.
The company boasts a strong balance sheet, consistently rising profitability, and a leadership position in the tobacco industry with popular brands like Marlboro, Virginia Slims, and Benson & Hedges.
It’s easy to argue that PM stock is significantly undervalued too. The stock currently trades with a price-to-earnings ratio of just over 16 in an industry where the average stock trades with a P/E more in the range of 25.
Analyst opinions suggest growth is ahead for the stock too. Of the eight analysts covering it, five rate it a Buy and three rate it a Hold. No analysts currently rate the stock a Sell. The average price target sits at $107.88, suggesting the potential for nearly 15% gains over the next year.
4. Chevron (CVX)
Best for global energy investors.
- Dividend Yield: 3.45%
- YTD Performance: Up over 37%
- P/E Ratio: 20.22
- Dividend Payout Ratio: 69.78%
- Quarterly Dividend Payment: $1.42 per share
Most people know the Chevron brand when they see it. The company owns a network of nearly 20,000 popular gas stations and convenience stores throughout the U.S. and in 83 other countries.
However, gas stations aren’t Chevron’s only business model.
The company includes subsidiaries that own a network of oil and gas pipelines throughout the United States, produce oil and gas both in the U.S. and offshore, and refine and market energy products. The company is part of seemingly every aspect of the oil and gas sector.
Chevron is also taking part in the clean energy movement. The company plans on being a net-zero carbon company by the year 2050. In the meantime, it’s investing billions of dollars in the reduction of its carbon emissions as well as developing renewable energy sources.
Although the dividend yield CVX offers isn’t the highest on this list, investors aren’t upset with the respectable 3.45% yield. The company’s also a dividend aristocrat, having increased dividend payments to investors for the past 35 consecutive years.
At the same time, the company is relatively undervalued, with a P/E ratio of around 20 in an industry where the average ratio sits around 25, suggesting that there’s plenty of room for growth ahead.
That could be why analysts have such a positive view of the stock. According to TipRanks, 15 of 23 analysts covering the stock rate it a Buy, seven rate it a Hold, and only one analyst thinks investors should sell their position in the stock.
The average price target on the stock is $163.61, which suggests the potential for about a 1% decline over the next year, but many of the forecasts haven’t been updated since the recent swing upward in oil prices. It’s likely the analyst price targets on CVX will be increased in short order.
5. Duke Energy (DUK)
Best for income investors looking for a strong utility play.
- Dividend Yield: 3.51%
- YTD Performance: up over 8%
- P/E Ratio: 22.28
- Dividend Payout Ratio: 74.95%
- Quarterly Dividend Payment: $0.98 per share
Duke Energy is an American electric utility company with 7.9 million customers across six states. The company boasts a strong balance sheet and a reliable business model.
As an electricity utility company, Duke Energy enjoys the fact that its service is a must-have for the majority of its target audience. Therefore, it doesn’t have to pile tons of money into marketing. Instead, it can use excess earnings for general corporate purposes, infrastructure improvements, and dividends paid to investors.
The company is one of the largest electric utility companies in the U.S. It’s also interested in the green energy movement, investing billions of dollars to reduce its reliance on fossil fuels and produce clean, renewable energy for its customers. The company has more than 50 solar energy plants and more than 20 wind energy farms across the country, and that number is growing rapidly.
From a valuation standpoint, Duke Energy is right on par with its competitors with a P/E ratio of 22.28, but analysts don’t think you should sell the stock quite yet. Eight of 13 analysts suggest holding the stock, and five think it’s a Buy. There are no Sell ratings to speak of.
In terms of price target, the company is in the same boat as Chevron. Analysts haven’t updated the stock’s expectations since the recent spike in energy costs. So, the price target of $110.69 suggests it could fall about 1% over the next year, but it wouldn’t be a surprise to see an upward price target revision or two in short order.
Consider Buying a Dividend Aristocrats ETF
If you’re not interested in building a list of individual high-yield dividend stocks or simply don’t have the time or expertise to do so, you may want to look into low-cost exchange-traded funds (ETFs), especially funds focused on investments in dividend aristocrats.
There are several ETFs centered around dividend aristocrats. If you go this route, make sure to compare your options. The most important factors to consider when making your comparison include:
- Performance. Dive into how the fund has performed over the past year, three years, and five years. Although past performance isn’t always indicative of the future, it’s a great place to start when setting expectations.
- Expense Ratio. ETF investors are charged a fee known as an expense ratio. It’s important to make sure the expense ratio is competitive and doesn’t cut too deep into your profits.
- Holdings. Different dividend aristocrat ETFs invest in aristocrats from different sectors. Some may invest in the entire list of just under 70 elite dividend payers. Make sure you know where your money’s going to be invested before making your investment.
Final Word
Dividend investing is rewarding. Most companies that pay consistent dividends experience low levels of volatility and follow a slow yet steady path higher. However, not all dividend payers are equal. It’s important that you do your research and build an understanding of what you’re investing in before you buy.
If you’re looking for solid stocks that come with high yields and represent safe, stable companies, start by considering the stocks listed above.